RUXX: Environmental Violations Threaten Russian Potato Market

NEW YORK, July 18, 2012 /PRNewswire/ -- Russia became a net exporter of potatoes in September – November 2011 for the first time in years, Fruit-Inform reported earlier this year. The key market for Russian potatoes is Azerbaijan, with smaller quantities also exported to Georgia (the country), Tajikistan, Uzbekistan and Mongolia. However, this lucky break for Russian potato producers may be undermined by lax environmental standards and even laxer enforcement.

In a recent incident, crop dusting planes hired by Maxim Gorky LLC, a division of National Soil Company, a large potato producer, owned by Russian oligarchAlexander Lebedev, have strayed over a residential community in Tula Region, which triggered a parliamentary inquiry, revealing a host of unsavory facts about the company and its business and environmental practices.

The inquiry discovered that not only does the company rely heavily on dispensing pesticides from the air without proper regulatory clearance, but it may have also growing potatoes in Plavsky County, one of the worst contaminated areas by Chernobyl fallout, with long half-life isotopes cesium-137 and strontium-90 making it only conditionally habitable and hardly a major agricultural producing area. It remains to be seen whether National Soil Company can be made to stop these questionable practices.

This is likely to affect not only the company's, but also all of Russia's chances of continuing as a growing potato exporter and to boost demand for potato imports in the country. Russia has been a net importer of agricultural products for decades following collapse of the Soviet Union despite its vast land and labor resources; one of the top priorities for the Russian government is to rebuild its agricultural production base and become less export-dependent. Ilya Lushnikov, senior analyst for RUXX index, says: "Russia will have to revisit its environmental and tax regulations to make sure farming is profitable and it conforms or even exceeds international standards."

RUXX is an index that tracks Russian stocks traded on Western Exchanges. RUXX analysts cover metals and mining, agriculture, IT and other industries.